Bloomberg News

French Gas Suppliers May Push for Scrapping of Regulated Prices

By Tara Patel
December 04, 2012

French natural-gas distributors,
encouraged by legal victories against the goverment’s pricing
system, may now push for its elimination by the European
Commission.

France’s highest court last week suspended a government cap
on household gas rates, paving the way for winter price
increases. The legal challenge was the latest by an organization
called Anode that represents gas distributors and which is
seeking to compete in France with former monopoly supplier GDF
Suez SA.

The court ruled there is “serious doubt” about the
legality of a 2 percent increase in natural gas prices allowed
by the government from Oct. 1. It gave the state one month to
announce new rates. Like previous rulings, the court referred in
its decision to France’s energy regulator, which for the period
in question had ruled prices should have increased 6.1 percent
to allow utilities to cover their costs of supply.

“If the government fails to abide by the court ruling the
only solution will be to seek to eliminate regulated rates
completely,” Olivier Freget, a partner at Allen & Overy in
Paris which represents Anode, said in an interview. “The
government won’t let go of a system that is absurd, archaic and
outdated.”

The Anode group of gas distributors would file a complaint
to the European Commission to have France’s regulated price
system for natural gas scrapped. The move would follow the
French court cases that have been aimed at loosening the
government’s control over gas pricing.

Legal Challenges

GDF Suez, which is 35 percent owned by the government, and
Anode, which represents companies including Direct Energie, have
mounted six legal challenges to state-set gas prices over the
past year. The Conseil d’Etat has ruled on four cases so far,
each time in favor of the the gas companies. It has cited
findings by the energy regulator Commission de Regulation de
l’Energie that state-set rates should have been set higher to
allow companies to cover their costs and compete in the market.

The decisions show “the French system of regulated gas
prices is unraveling,” according to Freget.

The government will announce revised tariffs on Dec. 10,
Environment and Energy Minister Delphine Batho said in a
statement Nov. 29 following the latest court ruling. The new
rates will take effect at the start of next year.

President Francois Hollande has vowed to extend a system of
so-called social tariffs for gas and power that would allow more
low-income families to benefit from reduced rates.

The government is also pushing for “structural reforms”
to lower gas prices, Batho has said. It has asked GDF Suez to
renegotiate supply contracts to reduce their link to oil prices.

Under Pressure

Setting gas and power prices in France has proved
politically difficult for successive governments under pressure
from consumer groups and voters to cap rate increases. Even
though GDF Suez has said gas tariff shortfalls at home have
shaved about 2 billion euros ($2.6 billion) from earnings since
mid-2007, it first went to court over the issue only about a
year ago. Jerome Chambin, a spokesman for GDF Suez (GSZ), declined to
comment on last week’s decision.

“I don’t have a magic wand, it’s the government and
lawmakers that decide” on prices, Philippe de Ladoucette, head
of the regulator, said in an interview. “We can’t force open
the market, we can’t invent new rules.”

Under the current system, GDF Suez applies each quarter for
a rate revision based on a formula that takes into account
supply costs. The government decides on the change after getting
an opinion from the regulator, which it is under no obligation
to follow.

Price Freeze

A year ago, the Conseil d’Etat suspended a price freeze put
in place by the previous government under former President
Nicolas Sarkozy. At that time, the regulator had ruled rates for
households should have increased by 8.8 percent to 10 percent.
In response to that court ruling, the government lifted tariffs
by 4.4 percent. The court allowed GDF Suez to recoup a shortfall
from consumers.

This time, Anode’s lawyer Freget says the government has to
pass on the full extent of the price increases as allowed by the
regulator.

“Regulated gas prices are not effective in protecting the
really vulnerable consumers,” he said. “This can be done
through social tariffs. The current system of subsidizing gas
prices helps people who don’t even need it.”

To contact the reporter on this story:
Tara Patel in Paris at
tpatel2@bloomberg.net

To contact the editor responsible for this story:
Will Kennedy at
wkennedy3@bloomberg.net